How UPS gains from law eroding pension protection

Critics complain delivery giant puts additional burden on other firms.

When Sandra Presley’s husband died four years ago, the couple’s retirement income from decades of working for trucking companies dropped by over half.

Now, the 72-year-old Forest Park woman fears her $634-a-month pension from working at Yellow Freight could shrink another 30 percent.

The reason: Congress tacked an eleventh-hour amendment onto last month’s federal spending bill that allows some struggling pension funds, including hers, to cut retiree benefits by 30 percent to 60 percent. That puts a dent in a 40-year-old federal law prohibiting such cuts in earned benefits, except in bankruptcy.

What’s more, pension rights advocates say a provision within the new law was tailored to help shipping giant UPS get out of a roughly $2 billion commitment it had made to its retirees while shifting the cost onto others in the multi-company plan that provides Presley’s pension.

The Sandy Springs-based company, which withdrew from the plan in 2007 in a negotiated agreement, said it has met its full obligations and deserves such protection because it went further than other companies to shore up the plan when it left.

The new law allowing reductions in pension payments could affect millions of retirees and workers covered by so-called “multiemployer” pensions, those jointly run by unions and multiple companies in an industry. In this case, it’s trucking.

Pension rights advocates worry the law creates a precedent on a broader scale, and that no retiree benefits may be safe from being cut in the future, including those in single-employer plans.

How we got here

Presley’s pension comes from the Teamsters union’s huge Central States fund, one of the nation’s most under-funded multiemployer pensions. It has about $16 billion less cash than needed to pay the benefits it has promised. It’s likely to be among the first to take advantage of the law by cutting current retiree benefits.

“It’s going to hurt me terribly,” said Presley. “I’m living off that money. I’m living off every dime of it.”

The new rule allowing benefit cuts was needed, supporters say, because the potential failure of plans like Central States could bankrupt the federal Pension Benefit Guaranty Corp.’s multiemployer fund, which insures pension benefits up to certain limits.

Experts predict the insurance fund, already $42 billion in the red, could run out of money in 10 to 15 years.

Some blame UPS for contributing to that problem when it left the Central States plan in 2007.

UPS originally joined the Central States plan more than 40 years ago as part of its contract with the Teamsters union, which runs Central States for represented workers at numerous trucking companies.

The pension was wracked by corruption in the 1960s and 1970s. Hundreds of trucking companies that were paying into the plan have failed since 1980, essentially leaving other firms to pay their so-called “orphan” retiree pensions. Those now account for half of every dollar Central States pays out.

During contract negotiations in 1997, UPS wanted out of the Central States so it could set up a company plan instead. After a 15-day national Teamsters strike erupted in part to oppose that effort, UPS capitulated.

But in 2007, the Teamsters reversed course as Central States deteriorated. It allowed UPS to move employees to a new company pension. To exit, UPS agreed to pay $6.1 billion to the pension fund to cover the benefits its retirees and workers had already earned. It also shouldered a $1.7 billion promise to cover certain future benefits, including UPS retirees’ checks if Central States ever cut them.

Central States got UPS’ $6.1 billion in late 2007 and invested it — just before the stock market crashed and the nation fell into its second-worst recession in a century.

Within months, UPS’ payment evaporated in the plunging market. Central States’ assets dropped from $26.8 billion at the beginning of 2008 to $17.4 billion by year’s end.

Worse for the long haul, the exit of UPS’ 44,000 employees meant the loss of $586 million in annual contributions from the company, and the loss of more than a third of its roster of active workers — the lifeblood of pension plans.

More trucking companies failed or suspended contributions during the recession, further wounding Central States. By 2013 its total annual contributions had dropped to $571 million – less than UPS’s previous contribution alone.

Central States’ assets have recovered some since the stock market crash, although it’s still in very poor shape.

Congress to the rescue?

Lobbyists for a coalition of unions and companies started arguing that Central States and other multiemployer plans were headed for insolvency unless they could cut retirees’ pensions. Such cuts undermine a key tenet of the Employee Retirement Income Security Act, a 1974 federal law that prohibits employers from reducing already-earned retirement benefits except in bankruptcy.

Lobbyists proposed a new law to allow multiemployer pension funds that are in danger of running out of money in 10 to 20 years, and that meet other criteria, to cut current retiree benefits.

When passed in December, the law included a provision putting UPS retirees last in line to absorb Central State’s likely benefit cuts, with “orphan” retirees from defunct companies first and those from other companies still in the plan next.

Critics say putting UPS at the back of the line means it likely will not have to pay out perhaps $2 billion to its retirees to cover benefit cuts — while retirees of other firms in the Central States plan will take bigger cuts.

Initially, the proposed law didn’t include the provisions. The UPS-friendly paragraphs showed up days before passage.

UPS would not talk about its lobbying effort. Records show it made a total of $163,848 in political contributions last year to 80 percent of the lawmakers on the House committee that handled the pension legislation.

The Teamsters union, which represents 253,000 UPS drivers and other workers, didn’t oppose the basic legislation but was not happy about the last-minute provision affecting UPS.

“UPS is attempting to escape a negotiated obligation the company agreed to when it withdrew from the Central States Pension Fund,” Teamsters President James P. Hoffa said a few days the bill’s final passage. “This outrageous government bailout of one of the most profitable companies in America should be stopped in its tracks.”

‘Right thing to do’

UPS spokesman Steve Gaut defended the company’s original decision to pull out of the plan, as well as the protection offered by the new law.

“We were concerned about the declining economics of that (Central States) plan,” he said of the 2007 pullout. “Everybody thought it was the right thing to do at the time. We continue to think it’s the right thing to do.”

Gaut said other companies can use the same provisions UPS did, which encourage corporations to bolster workers’ retirement benefits.

But, he added, they will have to do what UPS did: pull their employees out of the old pension plan, pay off their outstanding obligations, guarantee the workers’ benefits from the old plan, and set up a new pension for their workers.

“It happens that we meet (those) criteria,” he said. “This promotes responsible behavior on the part of companies.”

If other companies follow that prescription it will kill the Central States plan, said Ken Paff, national organizer for Teamsters for a Democratic Union, a dissident union group which opposed the legislation. That would put additional pressure on the already weak insurance fund.

“It’s absolutely appalling,” he said, if more companies bail out of the pension plan. “What about all the companies that are in the fund right now, paying into the fund? Pension funds don’t want their biggest contributor to leave. (UPS) doesn’t get a gold star for that,” he said.

He and other critics complain that the pension plans’ rescue will come at the expense of the most vulnerable — retirees who in many cases are well beyond their working years.

“We worked all our lives to earn a decent pension,” said Waymon Stroud, 61, who retired four years ago from Yellow Freight and is now president of the retirees club at Teamsters Local 728 in Atlanta. If his $2,800-a-month benefit got cut 30 percent, he added, “I’d have to go back to work.”

Presley doesn’t believe that’s an option for her.

“I feel betrayed,” the 72-year-old said.

If her pension is cut, she fears she may have to sell her house and move in with one of her three children. “I never wanted to be a burden to my children,” she said. “I don’t know what I would do.”

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